Geithner presses Europe to increase crisis firewall

By IBT Staff Reporter On 01/27/12 AT 3:56 PM

U.S. Treasury Secretary Timothy Geithner pressed Europe on Friday to boost its bailout fund resources, citing the euro zone debt crisis and oil prices as the two main factors influencing the pace of the United States' economic upturn.

Two bankers who attended meetings with Geithner at the World Economic Forum in Davos said the United States was looking for euro zone countries to roughly double the size of its financial firewall to 1.5 trillion euros. There was no immediate comment from the U.S. Treasury on the report.

The U.S. economy is growing at an annual rate of around 2-3 percent, Geithner told the annual conference in the Swiss Alps, adding that it still faces big challenges to repair damage wrought by the financial crisis.

Earlier on Friday, euro zone finance officials voiced optimism that key building blocks of a solution to Europe's sovereign debt crisis were gradually slotting into place.

But he said: Our view is that the only way Europe is going to be successful in holding this together is for them to bring a stronger firewall and that is going to demand a bigger commitment.

The International Monetary Fund, which this month requested an additional 500 billion euros ($650 billion)in funding, could help support Europe through the debt crisis if the euro zone boosted its bailout funds, he told the Forum.

Washington has so far resisted boosting IMF funds, partly because it could not get an increase in its own contribution through Congress in a presidential election year, diplomats say.

If Europe is able and willing to do that we believe the IMF is ready to play a constructive role, Geithner added. I think you'll see the IMF (be) very supportive in those efforts but not as a substitute for blocks to resolve the sovereign debt crisis (that) are gradually fitting into place.

Mexico's central bank chief, Agustin Carstens, told Reuters Insider television in an interview that he believed a consensus was building on boosting the IMF's resources to help European countries and others that might need aid.

Geithner discussed the issue at meetings with U.S. financiers and regulators on Thursday and European bank executives on Friday, participants said.

FIRST MOVE

Howard Lutnick, chief executive of broker Cantor Fitzgerald, who attended the first session: If the European participants to the euro set aside 1.5 trillion euros to buy their debt as a backstop, they don't need anyone else to buy their debt.

They become very Japan-like and (the) European sovereign debt crisis ends. Because there is no crisis - we will buy the bonds. End of story.

Piet Moerland, chairman of Rabobank of the Netherlands, who attended Friday's meeting with Geithner, said the United States and other players were saying Europe had to raise its contribution to the rescue fund before the IMF could move.

What they say is you have to move first and then we have the conviction that you are successfully managing the crisis, we will support that, Moerland told Reuters.

He too spoke of a doubling of the combined European rescue funds, which add up to roughly 800 billion euros.

Geithner said the health of U.S. business was better than expected, dismissing the suggestion that tighter regulations were hampering growth.

Profitability across the US economy is very high, he added. What is holding the US economy back still is the aftershocks of the financial crisis and the fiscal pressure on governments.

Turning to Iran, he said Washington's drive to cut Iran's oil exports was getting excellent support from Europe and that there were positive signs from China too.

Even over the last six months you're seeing a substantial intensification in (cutting) dependence on Iranian oil and my sense is also that China wants to be part of that effort because it is in China's interests not to see Iran undo the delicate balance in the Gulf, he added.

On his own future, Geithner reaffirmed that he would not expect to be asked to continue as Treasury chief if President Barack Obama wins re-election.

Generally anybody who takes these jobs serves at the pleasure of the president, he said.

When he asked me to stay when I thought it was the right time to leave, I agreed to stay and I agreed I would stay to the balance of this term. He accepted that aspiration of mine, and that's where it's going to come out, I think.

Geithner declined to say what he would do next: That feels like a long way away. ($1 = 0.7615 euros)